Function

• Dividend Reinvestment Programs are a way for smaller investors to purchase stock in a company without the need for a brokerage account or buying through a mutual fund. The reinvestment feature allows the investment to grow without further investment, or additional purchases can be made through the program.
  
  

Benefits

• By cutting out the brokerage middleman, investors can save on commission costs. Additionally, the DRIP program allows for the purchase of fractional shares so that none of the dividend sits in cash.
  
  

Misconceptions

• There is no company that offers access to all DRIP programs. Investment companies like ShareBuilder mimic many of the features of DRIP investing, but are not actually DRIP programs. Each company has its own DRIP program and the features and rules of that program can vary by company.
  
  

Warning

• DRIPs are not meant to be withdrawn from on a frequent basis. Selling shares from a DRIP account may be subject to various rules and procedures that may include a prohibition from purchasing additional shares (other than those from dividend reinvestment) for a specific period of time. Also, fees or penalties may apply to withdrawals that occur too soon after opening an account, or too frequently.
  
  

Considerations

• While DRIPs offer a cost effective way to invest directly in company stock, they do not provide for any diversification. An investor should ensure that they are properly diversified across their total net worth including any DRIP programs.
  
  

Identification

• Several hundred DRIP programs are offered through the major stock transfer agents, Bank of New York Mellon, American Stock Transfer Agent, and Computershare. The vast majority of large well known companies administer their DRIPs through these firms. For companies not associated with these transfer agents, check the Investor Relations section of the company's website.